WEBVTT - Surveillance: Equity Risk with Stubbs 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg surveillance podcast. I'm Tom Keane. Along 0:00:09.200 --> 0:00:13.200 with Jonathan Ferrill and Lisa Brownwitz Jailee, we bring you 0:00:13.280 --> 0:00:18.600 insight from the best and economics, finance, investment and international relations. 0:00:18.960 --> 0:00:24.000 Find Bloomberg surveillance on Apple podcast, soundcloud, Bloomberg Dot Com and, 0:00:24.079 --> 0:00:30.440 of course, on the Bloomberg terminal. Joining us now David stops, 0:00:30.440 --> 0:00:34.040 globe ahead across asset thematic strategy at JP Morgan Private Bank. David, 0:00:34.080 --> 0:00:35.960 good to catch up with you, sir. Let's start here. 0:00:36.000 --> 0:00:38.080 Can you give me one good reason to be bullish 0:00:38.159 --> 0:00:40.839 right now? Well, John, I think if you're going to 0:00:41.040 --> 0:00:42.680 meet the bullish case, I think you're going to look 0:00:42.680 --> 0:00:47.400 at the resilience of domestic consumer spending in parts of 0:00:47.400 --> 0:00:49.159 the Western world. I think you're also going to look 0:00:49.200 --> 0:00:52.840 at how much tightening has been priced in and and 0:00:52.920 --> 0:00:58.600 indeed expectations of recession you're broadening across across Wall Street. 0:00:58.960 --> 0:01:01.280 But I think bullish is not that we're going to 0:01:01.320 --> 0:01:04.200 see the kind of boom conditions we saw last year. 0:01:04.240 --> 0:01:08.040 Bullish would be a soft landing, a pretty soggy your 0:01:08.120 --> 0:01:10.880 economy next next year, but one that avoids a recession 0:01:10.959 --> 0:01:12.840 and avoids a major door down and earning. That's a 0:01:12.920 --> 0:01:14.840 bullish as you can get. I think right now. That's 0:01:14.880 --> 0:01:17.160 not exactly a ren endorsement of risk as it's David, 0:01:17.200 --> 0:01:19.320 I do wonder, especially at a time when Tina is 0:01:19.400 --> 0:01:22.520 dead right, there is an alternative and it is cash, 0:01:22.720 --> 0:01:25.560 it is short term instruments that are actually yielding something 0:01:26.120 --> 0:01:28.200 on inflation adjusted terms for the first time in a 0:01:28.360 --> 0:01:31.920 long time, is there any justification not to just hide 0:01:31.959 --> 0:01:35.360 out some of these instruments, collect the income and wait 0:01:35.400 --> 0:01:39.840 for a better, more clear entry? Well, we're absolutely recommending 0:01:39.880 --> 0:01:43.120 parts of the Fixed Income Universe at this point. As 0:01:43.160 --> 0:01:45.360 you as you rightly say, a lot of value is 0:01:45.400 --> 0:01:47.800 being created both at the short and long end. As 0:01:48.040 --> 0:01:51.320 as you were thinking the Intro, the ten years, at three, 0:01:51.400 --> 0:01:54.120 three fifty. We would be buyers of that in in 0:01:54.200 --> 0:01:56.640 portfolios that don't have any duration right now. We see 0:01:56.640 --> 0:01:59.640 a lot of value in preferreds as well. So there's 0:01:59.640 --> 0:02:03.160 plenty of ways to meet your financial goals if you 0:02:03.200 --> 0:02:06.600 want a mid single digit return without taking a lot 0:02:06.640 --> 0:02:08.320 of exerty risk. And it's maybe the first time you 0:02:08.320 --> 0:02:11.040 could say that in in a long, long time, given 0:02:11.080 --> 0:02:14.480 the lower for longer era that we've been on interest 0:02:14.560 --> 0:02:16.919 rates also. least, I think that. I think that you've 0:02:16.960 --> 0:02:20.400 really seen still some value be created in the structural 0:02:21.320 --> 0:02:24.160 in the structural changes that we see in the economy 0:02:24.200 --> 0:02:28.320 going to be going for clean energy, Fintech, genetic trapy, 0:02:28.400 --> 0:02:32.440 some tremendous but value there in factors and themes that 0:02:32.440 --> 0:02:35.720 are going to be huge drivers of our society going forward. David, 0:02:35.720 --> 0:02:37.120 I just want you to elaborate a little bit. You 0:02:37.160 --> 0:02:39.840 said that you would be buyers of ten year treasuries 0:02:39.919 --> 0:02:42.280 at three and a half percent. Do you think that 0:02:42.360 --> 0:02:45.320 this is the new peak and that basically, they cannot 0:02:45.480 --> 0:02:49.520 continue to lose more value yields up further? Oh No, 0:02:49.560 --> 0:02:52.720 we never we'd never say that definitively, but we just 0:02:52.760 --> 0:02:55.720 think that parts of the Fixed Income Space Right now 0:02:55.800 --> 0:02:58.120 have asymmetry about them. If you do go into a 0:02:58.160 --> 0:03:01.519 recession next year, we would fact your bond deals to 0:03:01.600 --> 0:03:04.760 fall significantly and we think that the potential returns and 0:03:04.760 --> 0:03:08.360 that scenario are now greater than the losses you may 0:03:08.400 --> 0:03:11.440 get if if bond deals continue to drift higher. So look, 0:03:11.840 --> 0:03:14.160 there's absolutely not a risk free trade right now, but 0:03:14.240 --> 0:03:17.680 a lot of our client's portfolios have very, very short 0:03:17.720 --> 0:03:21.440 to Anneel duration and clients have been waiting to leg 0:03:21.520 --> 0:03:25.919 in tow better yields over over the mediums, longer term. Well, 0:03:25.919 --> 0:03:28.400 now here they are and I think, for for the 0:03:28.480 --> 0:03:32.280 right portfolio for clients looking Um you for for that 0:03:32.360 --> 0:03:35.520 yield and for that stable return. Treasuries now are an 0:03:35.520 --> 0:03:37.000 option in the way, as you said, that they had 0:03:37.000 --> 0:03:39.600 not been in the previous decond thank you. There was 0:03:39.640 --> 0:03:46.920 stubbs there of JP Morgan Private Bank. Dana Peterson joins 0:03:47.000 --> 0:03:49.920 us now. Chief economists at the Conference Board. Dana, can 0:03:49.960 --> 0:03:52.480 you tell us how bad things are in this economy, 0:03:52.640 --> 0:03:56.200 because the data we're still getting signals resilience. You see 0:03:56.240 --> 0:04:00.360 the same thing? Sure, we're definitely seeing resil into the 0:04:00.440 --> 0:04:03.800 U S economy. The labor markets still strong. Jobless claims 0:04:03.800 --> 0:04:06.080 have been coming off. The adults data tell us that 0:04:06.120 --> 0:04:08.080 there's still a lot of job openings. When we look 0:04:08.120 --> 0:04:11.240 at GDP tracking for the third quarter, maybe we'll have 0:04:11.360 --> 0:04:15.560 something just slightly north of zero. Certainly consumers did spend 0:04:15.720 --> 0:04:19.600 in August. Spending was up two tenths of a percentage 0:04:19.600 --> 0:04:22.760 point in real terms, and also the trade outlook is 0:04:22.800 --> 0:04:26.120 looking a little bit better. With all that, we think 0:04:26.160 --> 0:04:28.640 that the Fed is it's a it's a great opportunity 0:04:28.640 --> 0:04:31.360 for the Fed to continue to raise interest rates to 0:04:31.400 --> 0:04:36.240 tackle really elevated inflation. Okay, so to go to John's point, 0:04:36.320 --> 0:04:39.200 is consumer resilience good or bad? You're saying it's a 0:04:39.200 --> 0:04:41.800 good opportunity for the Fed to raise rates, which other 0:04:41.800 --> 0:04:47.279 people would say is bad for the economy longer term. Well, 0:04:47.320 --> 0:04:50.880 I mean the thing is that inflation is is really bad. Right. 0:04:50.960 --> 0:04:53.640 So the headline inflation for the C P I only 0:04:53.680 --> 0:04:56.200 tick down the eight point three percent. Meanwhile the corps 0:04:56.480 --> 0:04:59.320 moved outward to six point three percent. A lot of 0:04:59.320 --> 0:05:03.440 the drivers, our food and shelter costs, basics for consumers. 0:05:03.440 --> 0:05:06.720 So that's really negative for the consumer and certainly the 0:05:06.920 --> 0:05:10.840 roads their incomes. And so it's definitely not a good 0:05:10.880 --> 0:05:13.880 thing if you have high inflation, but certainly it is 0:05:13.880 --> 0:05:16.680 a good thing if consumers are able to still weather 0:05:16.800 --> 0:05:22.440 higher interest rate hikes. Certainly that weighs on housing uh purchases, 0:05:22.520 --> 0:05:25.919 but nonetheless it's still a good thing overall for the economy. 0:05:26.200 --> 0:05:28.720 Do you have a sense of how quickly we're going 0:05:28.760 --> 0:05:31.120 to see the effects of the rate rises that we've 0:05:31.120 --> 0:05:33.839 already seen, of quantitative tightening that has yet to really happen, 0:05:33.920 --> 0:05:36.560 but ostensibly will happen at some point in the near future. 0:05:36.800 --> 0:05:40.640 How long does it take before it hits the economy? Well, 0:05:40.680 --> 0:05:42.880 I mean the thing is that it's really difficult to know. 0:05:43.000 --> 0:05:45.560 I mean back a long time ago we would say, well, 0:05:45.600 --> 0:05:48.120 it takes twelve to eighteen months for any fat actions 0:05:48.160 --> 0:05:50.520 to really feed through. But we're already seeing that fat 0:05:50.560 --> 0:05:53.800 actions are having an impact on the housing market Um 0:05:53.839 --> 0:05:56.480 and that's certainly a positive for the FT in terms 0:05:56.480 --> 0:06:00.120 of it's it's addressing inflation. So you're getting at these 0:06:00.160 --> 0:06:03.760 asset prices, even though the Fed is not target asset prices, 0:06:03.760 --> 0:06:07.080 but certainly in terms of the consumer price index is 0:06:07.120 --> 0:06:09.599 the Fed still, you know, really needs to do the 0:06:09.640 --> 0:06:12.480 work now and we should probably start seeing the effects 0:06:12.560 --> 0:06:16.000 later on next year. We're thinking that, uh, core and fleet, 0:06:16.040 --> 0:06:18.799 well key inflation gauges, probably won't return to two percent 0:06:18.839 --> 0:06:23.600 until very early Dana, every single piece of research we've 0:06:23.600 --> 0:06:25.520 had basically over the last week has been a bank 0:06:25.600 --> 0:06:29.799 somewhere on Wall Street upgrading their terminal rate view. Goldman 0:06:29.880 --> 0:06:31.720 the latest they look for four to fourth point to 0:06:31.960 --> 0:06:34.480 five by year ended twenty two, and maybe higher than 0:06:34.520 --> 0:06:37.400 that by the time we get through three DNA. The 0:06:37.480 --> 0:06:40.040 number one pushback, the LESA gets, that I get, the 0:06:40.040 --> 0:06:42.600 Tom gets, is that we can't live with four percent rates, 0:06:42.800 --> 0:06:44.680 that this economy just can't live with it, that the 0:06:44.680 --> 0:06:48.120 debt piles is too high the sovereign and the Treasury Na. 0:06:48.160 --> 0:06:50.159 Do you agree with that? What's the constructive view on 0:06:50.240 --> 0:06:52.640 why we can live with a four or four point 0:06:52.640 --> 0:06:55.960 five percent fed funds rate? Well, I mean, first of 0:06:55.960 --> 0:06:57.839 all I want to say the Conference Board came out 0:06:57.880 --> 0:07:01.960 really early with that call for or interest rate topping 0:07:01.960 --> 0:07:04.560 out at four percent and we've even been saying it 0:07:04.600 --> 0:07:08.280 could be even higher. Inflation doesn't really move and it 0:07:08.440 --> 0:07:12.000 remain sticky. But I think the Agus economy can and certainly, 0:07:12.520 --> 0:07:16.560 when you think about Um what policy makers have been saying, 0:07:16.560 --> 0:07:18.480 they're saying, look, you know we're in for a bit 0:07:18.480 --> 0:07:20.960 of pain, which I think is code for a recession, 0:07:21.040 --> 0:07:24.360 a mild, maybe brief recession. And certainly when you look 0:07:24.400 --> 0:07:27.640 at the labor markets, that's still super strong. It's going 0:07:27.680 --> 0:07:30.800 to remain uh, pretty robust, especially given the fact that 0:07:30.840 --> 0:07:32.960 you have labor shortages and so that means there's still 0:07:33.000 --> 0:07:35.840 going to be some hiring and not a cratering in 0:07:35.840 --> 0:07:38.320 the labor market. I think with all of that, yes, 0:07:38.640 --> 0:07:41.200 the US economy is going to have to endure a 0:07:41.200 --> 0:07:44.280 period of elevated interest rates in order to tackle inflation. 0:07:44.520 --> 0:07:48.280 Inflation is the worst problem here. So, Dana, that's going 0:07:48.320 --> 0:07:50.920 to lead to higher unemployment by design, and we've been 0:07:50.960 --> 0:07:53.520 talking about this. How much higher, I mean, do we 0:07:53.560 --> 0:07:57.200 see a commensurate increase in your expectations for the unemployment 0:07:57.280 --> 0:07:59.720 rate with every increase that we hear? To John's point 0:07:59.760 --> 0:08:02.480 from all street about the Fed funds rate and where 0:08:02.520 --> 0:08:06.160 we end up? We think with our forecasts of the 0:08:06.200 --> 0:08:08.760 four percent fed funds rate, we think the unemployment rate 0:08:08.800 --> 0:08:12.240 will probably arise to four percent even still. Les's incredibly 0:08:12.320 --> 0:08:14.400 low Um and even if we go into four and 0:08:14.400 --> 0:08:16.320 a half, go to four and a half percent, that's 0:08:16.360 --> 0:08:20.000 probably around the neutral rate Um, and so that suggests 0:08:20.040 --> 0:08:22.360 we still have a very strong labor market. We're not 0:08:22.440 --> 0:08:26.320 expecting to see five and six percent unemployment here. This 0:08:26.400 --> 0:08:28.880 is a very different labor market. We didn't have shortages 0:08:29.440 --> 0:08:32.439 ten twenty years ago. We do now and that's really 0:08:32.480 --> 0:08:36.040 going to help, uh, I think, keep the labor market 0:08:36.080 --> 0:08:42.559 from worsening relative to the overall economy. Is it instructive 0:08:42.600 --> 0:08:44.600 for us to look at averages here when we talk 0:08:44.640 --> 0:08:47.400 about the labor market, when we talk about how well 0:08:47.760 --> 0:08:51.040 different households can weather this, especially because you're talking about, 0:08:51.360 --> 0:08:53.920 you know, half of the income in the United States 0:08:54.000 --> 0:08:56.440 driven by households that earn more than a hundred thousand dollars, 0:08:56.440 --> 0:08:58.240 is put out there by Morgan Stanley. Most of them 0:08:58.280 --> 0:09:01.920 own their own homes, either outright or else with mortgage 0:09:01.960 --> 0:09:04.360 rates that were locked in lower, at very low rates. 0:09:04.800 --> 0:09:07.280 The rest of the economy, the rest of the households 0:09:07.320 --> 0:09:10.280 are really struggling, both because they've got lower income and 0:09:10.320 --> 0:09:13.199 because they have, if not fixed costs, but pay rents 0:09:13.400 --> 0:09:15.800 and have to deal with the increase there. How do 0:09:15.840 --> 0:09:18.400 you gauge that out at a time where we're looking 0:09:18.400 --> 0:09:22.360 at averages to determine policy? Well, it's interesting when you 0:09:22.400 --> 0:09:26.240 look at certainly wage gains, the folks who have gained 0:09:26.240 --> 0:09:29.600 the most in terms of wage gains, the next last 0:09:29.760 --> 0:09:31.719 over the last couple of years, have been people on 0:09:31.760 --> 0:09:33.960 the lower end of the income spectrum, also people who 0:09:33.960 --> 0:09:36.880 have been quitting, also people work in those in person 0:09:37.000 --> 0:09:40.320 services types of jobs that tend to have lower wages 0:09:40.320 --> 0:09:42.640 in general. Those are the people who have seen the 0:09:42.640 --> 0:09:46.520 biggest gains and wages, and so it's I mean, we 0:09:46.600 --> 0:09:49.160 certainly should look at the granular data, but it's not 0:09:49.200 --> 0:09:51.640 necessarily the case that, you know, folks at the lower 0:09:51.720 --> 0:09:53.640 end of the spectrum have been losing out here. They've 0:09:53.640 --> 0:09:58.360 actually been gaining by quitting and also through the very 0:09:58.400 --> 0:10:01.760 aggressive tactics that pleas have been using to attract labor, 0:10:01.880 --> 0:10:05.760 especially for things for businesses like restaurants and hotels and 0:10:05.800 --> 0:10:10.120 manufacturing and transportation, which tend to have folks on the 0:10:10.120 --> 0:10:12.440 lower end of the income spectrum. At least. The credit 0:10:12.520 --> 0:10:15.040 is Jean Barvan of black rock for coming out in 0:10:15.040 --> 0:10:17.640 the last month or so. I'm raising a question that 0:10:17.679 --> 0:10:19.800 I don't think we've talked enough about, which is what 0:10:19.920 --> 0:10:22.720 is the appropriate time frame to try and bring inflation 0:10:22.760 --> 0:10:25.360 back towards target? What you hear there from Dana is 0:10:26.600 --> 0:10:29.360 not three story and I just wonder if the risk 0:10:29.360 --> 0:10:33.160 ascue towards maybe pushing that out even further. This task 0:10:33.240 --> 0:10:35.160 might be big and more difficult than maybe we've given 0:10:35.160 --> 0:10:37.800 it credit for, and perhaps people won't have the appetite 0:10:37.960 --> 0:10:40.080 for some of the economic pain in order to get 0:10:40.120 --> 0:10:43.960 it down to two or even four and I think that. That, 0:10:44.040 --> 0:10:46.280 to your point, is the whole Adam posing view. Do 0:10:46.320 --> 0:10:48.480 we get comfortable with a three percent target for a 0:10:48.480 --> 0:10:51.720 little bit longer? Is that politically feasible? But they would 0:10:51.720 --> 0:10:53.839 you go with that? Do you think maybe risk askew 0:10:53.920 --> 0:10:58.640 to this taking longer? Well, it certainly isn't our forecast 0:10:58.720 --> 0:11:00.480 that it's going to take a while. I like we 0:11:00.559 --> 0:11:04.040 don't have the policy. I'm sorry, we don't have interest rates. 0:11:04.600 --> 0:11:07.080 We don't have interest rates falling next year because we 0:11:07.120 --> 0:11:11.319 think inflation is going to remain elevated and certainly this 0:11:11.400 --> 0:11:14.000 is going to take some time. But there is that 0:11:14.120 --> 0:11:17.000 possibility out there. Is something that I was saying earlier 0:11:17.000 --> 0:11:19.000 in the spring that maybe the Fed will get more 0:11:19.040 --> 0:11:22.120 comfortable with having an inflation close to the three percent 0:11:22.200 --> 0:11:25.439 than two percent, especially if we have a very significant 0:11:25.520 --> 0:11:29.200 downturn and economic activity. But I think it's also a 0:11:29.280 --> 0:11:31.160 function of the fact that we have a lot more 0:11:31.200 --> 0:11:35.400 inflationary pressures, long term inflationary pressures such as labor shortages, 0:11:35.760 --> 0:11:40.080 such as the semiconductor shortage, such as industrial policies where 0:11:40.440 --> 0:11:43.719 businesses have to reorient their supply chain that's very expensive, 0:11:44.080 --> 0:11:46.320 and so all those things are going to get passed 0:11:46.320 --> 0:11:48.320 on to the customer, and so it's going to be 0:11:48.440 --> 0:11:51.040 very difficult, I think, for the Fed to keep interest rate, 0:11:51.120 --> 0:11:54.560 I'm sorry, to keep inflation close to that too percent target, 0:11:54.920 --> 0:11:57.839 and so either. So I think that those are all 0:11:57.880 --> 0:12:00.720 forces out there that are going to weigh on the 0:12:00.800 --> 0:12:03.600 Fed and certainly the economy over the longer term. Danna, 0:12:03.640 --> 0:12:04.960 you want of the best. Thanks for being with us, 0:12:05.040 --> 0:12:19.120 Danna Petterson. There at the Conference Board. Matto joins US now. 0:12:19.120 --> 0:12:20.760 They had a few s investment grade and seeing a 0:12:20.800 --> 0:12:24.319 portfolio manager at investco. Matt, have we seen the worst 0:12:24.360 --> 0:12:27.920 of it and do you want to stop buying Hagan Warton, Jonathan? Uh? Yeah, 0:12:28.120 --> 0:12:30.320 I think we've. We've probably not seen the worst of 0:12:30.320 --> 0:12:34.120 it yet, Um, but things are certainly attractive. I think 0:12:34.160 --> 0:12:36.319 you look at valuations, it's it's impossible to argue that 0:12:36.320 --> 0:12:38.600 they don't. Things don't look cheap, particularly investment grade and 0:12:38.640 --> 0:12:41.160 I yield. They look very cheap. But the problem as 0:12:41.200 --> 0:12:43.880 investors keep being early and it's painful to be early. 0:12:43.920 --> 0:12:45.720 You know that. The old saying is Um, you know, 0:12:45.880 --> 0:12:48.280 if you're earlier, you're wrong, and right now everybody that's 0:12:48.320 --> 0:12:50.360 been early has been wrong. And so even though the 0:12:50.400 --> 0:12:53.360 valuations are there. It looks attractive. You're probably gonna make 0:12:53.400 --> 0:12:55.480 money over the next year, but over the next few weeks, 0:12:55.600 --> 0:12:57.120 who knows? We've still got to get to the next 0:12:57.120 --> 0:12:59.280 CPI prep before you can have any sort of clarity 0:12:59.320 --> 0:13:01.280 at this point. On Matt, a lot of people question 0:13:01.520 --> 0:13:04.720 what credit spreads, with the extra premium that investors demand 0:13:04.760 --> 0:13:08.160 to own corporate debt over benchmark rates, over the benchmark 0:13:08.200 --> 0:13:10.400 full faith and credit at the United States, whether that's 0:13:10.440 --> 0:13:13.800 actually pricing in the economic pain that a four to 0:13:13.840 --> 0:13:16.320 four and a half percent fed funds rate is conferring. 0:13:16.400 --> 0:13:19.640 Do you think so? So at this point it's not. 0:13:20.000 --> 0:13:22.720 It's it's really pricing in a slowdown of the economy. 0:13:22.760 --> 0:13:25.320 It's not pricing in a hard procession. Um, you know, 0:13:25.320 --> 0:13:28.360 I think at this point all in yields, you know, historically, 0:13:28.440 --> 0:13:30.439 you know I have not been not been this high 0:13:30.440 --> 0:13:32.480 in thirty years. So if you're looking at pure credit 0:13:32.480 --> 0:13:34.240 spreads versus all in yields is a little bit different 0:13:34.280 --> 0:13:36.680 a story. But we're not seeing a lot of pain 0:13:36.720 --> 0:13:39.079 in corporate credit. The last few weeks, even, or last 0:13:39.080 --> 0:13:41.280 week or so, even after the CPI, it's mainly been 0:13:41.360 --> 0:13:44.200 rate driven. So the credit markets are telling you that 0:13:44.240 --> 0:13:48.679 corporations can get through this Um that unless this, this inflation, 0:13:48.679 --> 0:13:51.480 continues for forever. Um You know, at some point we're 0:13:51.480 --> 0:13:53.640 gonna get the Fed more in balance and we're actually 0:13:53.679 --> 0:13:56.320 gonna see Um, the strength of these balance sheets went out. 0:13:56.480 --> 0:13:58.440 But we still have to get to that terminal, you know, 0:13:58.520 --> 0:14:00.600 terminal high in terminal rate, in order to know, you know, 0:14:00.600 --> 0:14:02.280 how bad it's gonna be from the Fed. A number 0:14:02.280 --> 0:14:05.200 of investors have gotten pretty bullish actually on the prospect 0:14:05.200 --> 0:14:07.440 of credit. I'm thinking, for example, of Jeff gunlock over 0:14:07.480 --> 0:14:10.280 at double line or oak tree, seeing equity like potential 0:14:10.280 --> 0:14:12.720 returns in credit. Do you agree that at this point 0:14:12.800 --> 0:14:14.240 it's a time to lean in and that you're gonna 0:14:14.240 --> 0:14:17.439 get really good returns? So, yeah, we look at the 0:14:17.720 --> 0:14:21.400 difference between Equity Yields and credit yields and if you 0:14:21.600 --> 0:14:22.920 I like to look at three to five of your 0:14:22.920 --> 0:14:24.920 credit yields because you don't have to take on a 0:14:24.920 --> 0:14:27.040 lot of duration there and you're you're getting about three 0:14:27.080 --> 0:14:30.520 percentage points extra yield by buying bonds and you are 0:14:30.560 --> 0:14:32.520 buying stocks. And so to me it's it's, it's, it's 0:14:32.560 --> 0:14:35.600 it's a very, very attractive time to be buying bonds 0:14:35.680 --> 0:14:38.240 versus stocks, and I'm not, you know, stock expert, but 0:14:38.240 --> 0:14:39.960 I'm just staying on a relevant basis. It looks pretty 0:14:39.960 --> 0:14:42.200 good to me, Um and so, from that same point 0:14:42.360 --> 0:14:44.920 you're locking in five percent yields for the first time 0:14:44.960 --> 0:14:47.080 since two thousand and nine on ten year credit. You 0:14:47.080 --> 0:14:49.320 can lock in pretty much the same on front end credit. 0:14:49.560 --> 0:14:51.960 So I like credit at this point. Again, I just 0:14:51.960 --> 0:14:53.760 think that the timing is very difficult. But if you're 0:14:53.760 --> 0:14:55.720 able to close your eyes and buy, we think they're 0:14:55.720 --> 0:14:58.040 gonna do well. I've got no problem with the bond 0:14:58.040 --> 0:15:00.400 market guys talking about stokes. The stock market guys do 0:15:00.480 --> 0:15:03.800 it all the time. They're always talking about the bum market, Matt, 0:15:03.840 --> 0:15:06.200 least when I've reflect on the following over the last 0:15:06.200 --> 0:15:07.480 week or so. In fact, we've been doing it for 0:15:07.520 --> 0:15:10.040 a few months now. The tone that I still get 0:15:10.080 --> 0:15:12.320 from a lot of guests on this program is that 0:15:12.400 --> 0:15:15.320 these issues are still somewhat temporary, that even if the 0:15:15.360 --> 0:15:17.480 Fed goes to four or four and a half, ultimately 0:15:17.520 --> 0:15:19.840 we returned to the world world of the last ten 0:15:19.920 --> 0:15:22.800 years or so. Are you pushing back against that, Matt? 0:15:24.760 --> 0:15:26.760 I think we'll eventually get there, but it's just taking 0:15:26.840 --> 0:15:28.760 so long to get anywhere. If you just think about 0:15:28.760 --> 0:15:30.520 how long we've been in this pandemic. How long been? 0:15:30.760 --> 0:15:32.560 You know, we're officially out of it now, I guess, 0:15:32.800 --> 0:15:34.960 but it's just taking longer to get out of everything 0:15:34.960 --> 0:15:37.640 and get back to normal. So Um, I think the 0:15:37.720 --> 0:15:41.960 longer term trends down the road, aging demographics, technological innovation, 0:15:42.480 --> 0:15:45.680 those are key drivers of of having deflation or lower inflation, 0:15:45.920 --> 0:15:48.320 but they just can't take place fast enough right now. 0:15:48.680 --> 0:15:51.400 And so in that regard, any expectations that we would 0:15:51.400 --> 0:15:53.080 have had for a quicker turnaround and have been have 0:15:53.120 --> 0:15:55.680 been put on hold. Um or a quicker a quicker 0:15:55.680 --> 0:15:58.160 return to normal. And so from that standpoint we're gonna 0:15:58.200 --> 0:15:59.960 have to ride this out a little longer. The next 0:16:00.040 --> 0:16:02.240 NPI print is going to be, you know, on everybody's mind, 0:16:02.240 --> 0:16:03.480 but that may not be enough, for we'd have to 0:16:03.520 --> 0:16:05.560 wait for another one and then another one. So, you know, 0:16:05.600 --> 0:16:08.920 call it two thousand and five, but it's not happening 0:16:08.960 --> 0:16:11.040 nearly as quickly as we'd like it too. We just 0:16:11.040 --> 0:16:13.200 have to rely on evaluations being attractive at this point. 0:16:13.240 --> 0:16:15.280 Just quickly, Matt, what would you be asking Fred Chair 0:16:15.360 --> 0:16:16.960 j Powell, this Wednesday. What do you want to hear 0:16:16.960 --> 0:16:20.320 from him? So I want to know two things. First off, 0:16:20.520 --> 0:16:22.440 what are you gonna do with your your mortgage book? Um, 0:16:22.480 --> 0:16:23.920 you know. Are you going to start to sell is? 0:16:24.240 --> 0:16:26.440 Are you? Are you? Are you? Are you considering that 0:16:26.480 --> 0:16:28.520 at this point at least? And then second I want 0:16:28.520 --> 0:16:30.080 to know how patient are you? You know, we know 0:16:30.120 --> 0:16:31.400 that there's a lot of hikes that have been in 0:16:31.440 --> 0:16:33.080 the pipeline. There's a lot of pipes that a lot 0:16:33.120 --> 0:16:35.120 of hikes that are going to hit the economy at 0:16:35.160 --> 0:16:37.960 some point. You know, how patient are you willing to be? 0:16:38.280 --> 0:16:41.000 And at what point are you? Are you going to 0:16:41.040 --> 0:16:43.200 be more, even more aggressive? You know that would be 0:16:43.240 --> 0:16:45.560 a hunter basis points rather than seventy five. I think 0:16:45.560 --> 0:16:47.600 he's going to take his time. I think he has 0:16:47.640 --> 0:16:49.480 to know that this is going to slow the economy. 0:16:49.840 --> 0:16:52.000 But if he just says I'm out of patience, Um, 0:16:52.040 --> 0:16:54.200 you know, that's gonna be a problem of a vest 0:16:55.120 --> 0:17:02.360 to catch Hump Buddy as a white Peter Sheer, head 0:17:02.400 --> 0:17:05.160 of macro strategy at Academy Securities, joining us now. And Peter, 0:17:05.520 --> 0:17:08.560 you were talking about last week and that something happened 0:17:08.640 --> 0:17:11.159 that was pretty dramatic in your view, and it wasn't 0:17:11.200 --> 0:17:17.159 necessarily a total reset of fed expectations. It was fedex explain. Listen, 0:17:17.560 --> 0:17:19.240 I keep looking at the data and a lot of 0:17:19.280 --> 0:17:21.639 the data we get is backward looking, it's weak, it 0:17:21.680 --> 0:17:23.679 tends to get revised. So I'm kind of looking what 0:17:23.840 --> 0:17:26.919 is really contemporaneous, what is effective, and the Fed x 0:17:26.960 --> 0:17:29.560 warning to me is real right that that's someone seeing 0:17:29.560 --> 0:17:32.600 business move in real time. Stated today. It came right 0:17:32.640 --> 0:17:35.560 on the heels of CPI where we had housing inflation 0:17:35.600 --> 0:17:37.960 was up point seven, one of the biggest contributors to 0:17:38.000 --> 0:17:40.360 the CPI. And yet, as far as anyone can tell, 0:17:40.560 --> 0:17:42.640 nothing good is going on in the housing market right now. 0:17:42.920 --> 0:17:44.520 So I think we all know where the data is 0:17:44.560 --> 0:17:46.800 headed as the official data catches up, and it's going 0:17:46.840 --> 0:17:48.600 to be weak and it's gonna be a little bit scary. 0:17:48.760 --> 0:17:49.800 So do you think that the Fed is going to 0:17:49.880 --> 0:17:53.000 reflect this on Wednesday when we hear from them? Wow, 0:17:53.040 --> 0:17:54.960 I think they are caught on such a you know, 0:17:55.080 --> 0:17:57.360 between a rock and a hard spot, where they've been 0:17:57.560 --> 0:18:01.680 so hockey, starting at Jackson old they've been continuing that message. 0:18:01.920 --> 0:18:04.080 I think someone's got to step back and say okay, 0:18:04.200 --> 0:18:06.600 we've got to be a little bit careful. Traditionally it 0:18:06.680 --> 0:18:08.800 does take some time for our hikes to come through 0:18:08.800 --> 0:18:12.119 the economy and everything we're seeing real time, especially if 0:18:12.119 --> 0:18:14.160 you look at the wealth effect, is saying, Whoa, this 0:18:14.240 --> 0:18:17.040 is getting a little bit dangerous. I think the fixation 0:18:17.080 --> 0:18:20.000 on CP I, how it's calculated, is wrong. I think 0:18:20.160 --> 0:18:22.000 how as usual, is going to wind up having to 0:18:22.080 --> 0:18:24.000 let some of his inner dub come out. So you 0:18:24.040 --> 0:18:26.440 said it's getting a little bit dangerous. Can you explain, 0:18:26.440 --> 0:18:28.240 because a lot of people are pointing to the resilience 0:18:28.240 --> 0:18:31.600 of the consumer. Yes, perhaps Fedex is an outlier, perhaps 0:18:31.600 --> 0:18:35.080 there's some idiosyncratic issues in Tantem with a global economy 0:18:35.080 --> 0:18:37.840 that's slowing down, but what are you looking at that's 0:18:37.880 --> 0:18:40.840 telling you that things are getting dangerous? Well, I'll even 0:18:40.880 --> 0:18:42.879 go back to the consumer. Right people are saying the 0:18:42.920 --> 0:18:44.960 consumer did well, but if you look at the control group, 0:18:45.240 --> 0:18:47.520 people thought they spent point eight percent last month, it 0:18:47.560 --> 0:18:50.240 turns out they only spent point four. Expectations were point five. 0:18:50.280 --> 0:18:53.120 This month they spend zero percent. So I don't think 0:18:53.160 --> 0:18:55.240 the consumer is anywhere near and strong. I think they're 0:18:55.240 --> 0:18:58.359 going back to buying discounting. I'm watching the inventory build, 0:18:58.400 --> 0:19:00.800 which has been shocking. You're seeing month after month after 0:19:00.880 --> 0:19:04.080 month of inventory build as two things I think happened. One, 0:19:04.520 --> 0:19:08.359 companies overestimated consumer demand. They didn't realize how much consumers 0:19:08.359 --> 0:19:11.160 were pulling forward because they were worried about supply chains, 0:19:11.359 --> 0:19:14.440 and two, companies were so worried about supply chains they've overstocked. 0:19:14.440 --> 0:19:16.680 So I think that's a real hangover for this economy. 0:19:16.880 --> 0:19:19.359 And then I look at Crypto and that whole market space. Right, 0:19:19.400 --> 0:19:22.119 it went to two trillion. It funded all these industries. 0:19:22.119 --> 0:19:25.000 They're all struggling and they were sending money wherever they could. 0:19:25.080 --> 0:19:27.320 Right they were buying chips, they were buying new computer systems, 0:19:27.320 --> 0:19:30.399 they were buying, you know, ads on anything as they 0:19:30.440 --> 0:19:33.560 have to focus on actually just survival and turning casual positive. 0:19:33.800 --> 0:19:35.600